San Francisco Chroincle

To say that newspapers are in trouble is a misstatement bordering on self-delusion.Last week the Rocky Mountain News closed its doors after 150 years and papers from coast to coast are teetering on bankruptcy.In vain efforts to stay afloat newsrooms have cut staff to the bone with some losing over half of their head count in the last ten years.

Newspapers are not broken, they still provide a valuable function in a free society and people are willing to pay for the product.According to a study published in December 2008 by Dr. Jack Miller, president of Central Connecticut State University, despite declines in the U.S., paid circulation and advertising are going up worldwide with more than 1.4 billion people reading a daily newspaper.

Other findings from the report: Japan’s paid circulation is three times that of the U.S., and on average, Japanese newspapers cost three times what they do in the U.S.And the Republic of Korea, Singapore, Venezuela, Finland, Greece, the United Kingdom, Sweden and Norway all exceed U.S. newspaper circulation figures.Circulation continues to decline in the US but consumers have not so much abandoned news as they have chosen more convenient delivery options.

Getting the business model right

The U.S. newspaper business model is a dead man walking and revival of the newspaper industry in this country will require a new approach to doing business and competing.

Newspapers have co-existed with a variety of competitors for decades including radio, TV, magazines and the Internet.While each of these media provides information, only newspapers can consistently deliver detailed, fact-checked, local, national and international news daily.

Most newspapers have tried to cut costs but, ironically, they have cut in a place that cheapens their product, the newsroom.Cheapening the product is not a recipe for revival.Newspaper fixed overhead is high.Trucks, fuel, newsprint, ink, pressroom labor—everything that goes into printing a paper has been squeezed.But if you are going to print a paper you need a press, paper, ink and people to make the product.Eliminating these costs in a digital age is both possible and necessary which means the newspaper business model needs to be reinvented.

Going digital

Digital delivery could solve multiple problems and the challenge is not as hard as it seems.Despite the fact that papers have been loath to charge for their on-line editions, conditions are now right for them to do so.People are accustomed to receiving at least some of their news on-line and there are many options from cell phones to computers, laptops and special readers like the Kindle device from Amazon.com.

The difficulty of converting to digital newspaper delivery resembles the climb software providers made from free-ware to licensed products.At the beginning of the PC era, software was largely thought of as communal property and it was a young entrepreneur named Bill Gates who said, no, actually this is our work product and you need to pay for it. Demand did not shrink as a result and the rest is history.

Newspapers somehow became suspicious of charging for their on-line content at the beginning of the digital revolution for reasons that are obscure.But most likely, it had something to do with having the computer infrastructure to deliver the product and manage subscription billing.The problem also has an element of what to do with pressroom employees if the paper doesn’t print a paper.

Three part solution

There are three issues with going digital—delivery, billing and legacy labor issues.Delivery has two sides, publication and reception, which are mostly solved.Think of it as basic infrastructure.Most big-city papers already have on-line editions, which is the publication part.Subscribers have various devices for reading content too, though many may lack an appropriate screen for serious reading.

It’s one thing to read a short article on a cell phone but another to make that your standard.Computers are ubiquitous but they may need to be supplemented by specialized reading devices for issues like battery life and transportability.Papers would, perhaps, need to make it easy for their subscribers to acquire such devices.For instance, a future subscription model could include use of a reader the same way a cell phone service provider offers phones with a subscription.

That leaves legacy labor and billing.Labor is a tough nut to crack.People who have dedicated their careers to getting the paper out would find themselves out of work and some provision for them must be made.But as a percentage of jobs in newspapers today, their number is not large and a solution, most likely a buyout, could be worked out.

Billing is the heart of the new business model and the solution.People already buy subscriptions and pay for them through a variety of electronic payment systems such as credit cards.But electronic billing for a subscription to a physical product like a paper is not the billing model needed for digital news delivery.A subscription to an on-line paper must be capable of being shared among the people in a household, simultaneously and on multiple devices.Newspapers need a digital business model whose heart is a digital subscription billing model.

Elements of a solution

The elements of a revamped newspaper business model already exist, however they have not been brought together in a credible way in a single situation.Ground zero for integrating the elements the new model should be the San Francisco Chronicle.

Going digital may be a tough sell but if it cannot be done in San Francisco, with all of the technical and business expertise nearby in Silicon Valley, then it cannot be done.The Chronicle is in tough shape anyhow and makes an ideal case study to boot.

The big unknown in all this is subscription billing.As already noted billing for a digital subscription is not the same as billing for home delivery.As luck would have it though, there is at least one company, Zuora, conveniently located in San Francisco, that has already worked out most of the details.

Zuora produces a subscription billing system that meets virtually all of the needs of newspapers.The billing system was originally developed for software companies that deliver their applications as services on the Internet rather than as licenses for individual computers.

In the last ten years, software as a service, or SaaS, has come to dominate the industry and Zuora co-founder and CEO Tien Tzuo was one of the first to understand the needs of vendors who sell subscriptions to their products over the Internet.Zuora’s billing system, or something like it, is the missing element for developing a viable twenty-first century newspaper business model.

Transition

No doubt, spinning up the new business model will take time.The paper will need to continue printing for months or years, but as customers become accustomed to receiving their papers on-line, subscription revenue—and most important, profit—will exceed print versions and papers will be able to dedicate more resources to making a quality product rather than driving newspapers around town.

Newspapers are vital to a city and a region’s civic health.They provide a product and service that other media cannot afford to do or may not even attempt.At their best, papers provide a level of depth and analysis that is often lacking in radio or TV network journalism.Newspapers are the entities with the resources and attention spans to follow a story that brings down corruption and separates fleeting, glossy images from substance.

Like many other industries newspapers have existed on the same business model for decades or even centuries with little change.Some executives have a hard time separating their core business model from their delivery model.The two are different and the marketplace is insisting that a separation be made.Newspapers can be viable, vibrant and profitable again but it will require work and some pain.

When the business model change comes it will be sudden and swift because the existing paradigm will collapse everywhere at once and because large newspaper chains will accelerate the turnover.The elements are in place.Will San Francisco lead?

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Beagle Research Group, LLC is a CRM analyst firm founded in 2004. We perform market research for vendors and advise end users in CRM selection, deployment and use. We also publish a steady stream of analysis on many of the industry’s most popular topics as well as emerging trends. For example, one of our core pursuits is researching emerging companies to understand current innovation trends. This research informs the advice we give our clients and readers.